Pricing bank services;

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Pricing Bank Services
by EUGENE L. LARKIN, JR. Partner, New York Office
Presented before the Junior Bankers Conference of The Georgia Bankers Association, Pine Mountain, Georgia—September 1967
MY SUBJECT for this morning is one in which bankers from institu­tions
of all sizes are showing constantly increasing interest. And for good reason. The costs of furnishing services are continually rising and, at the same time, it is becoming increasingly difficult to obtain com­pensating
balances.
TREND TOWARD CHARGING FOR BANK SERVICES Traditional Policy
In our discussion today, we shall not be directing our principal at­tention
to those services, such as trust services, for which banks have historically charged fees. Rather, we shall be primarily concerned with those services where related balances are concerned. Until recent years these services were generally furnished at no charge. This practice was based on the theory that earnings on customers' balances provided the bank with adequate compensation. In general, this was true in the aggregate. An analysis of the balances and activity in individual cus­tomers'
accounts, however, would undoubtedly have disclosed that some accounts were not profitable. This did not concern bankers unduly, how­ever,
so long as the system as a whole produced an over-all net profit.
In recent years a number of changes have occurred that have re­quired
a reappraisal by the banking community of its traditional policy of providing services free in expectation of compensating balances.
Variety and Volume of Services
One of these changes is the tremendous increase in both the variety and the volume of services provided. A quarter century ago, services to customers consisted principally of check clearing and depositor-account bookkeeping. The volume of this activity was small, however, in relation to today's standards, requiring the services of only a few employees and a minimum of costly equipment. Today, the volume of transactions in an average account is many times that of twenty-five years ago.
Not only has the volume of activity increased in services that have
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